By Staff
The last few weeks, the Twitter feeds I watch have been chock-full of advice for GM.
I follow a lot of business magazines on Twitter, as well as sales and technology experts, and just about every one of them has had some kind of advice for the struggling automaker, as well as its cousin in distress, Chrysler.
I won't pretend to understand the complexity of either of those companies, but I do understand many basic business principles that I've learned after several years of successes and failures in the working world.
GM's struggles are nothing new, so the company's bankruptcy can't be blamed solely on the global recession, the influx of foreign-made cars or even my favorite punching bag, CAF… standards.
It was John Delorean who in the 1970s pointed out the company's biggest flaws, namely out-of-touch executives who had no idea what consumers were looking for because they never approached the car-buying process from the shopper's perspective.
That insularity from the needs and habits of consumers happens in every industry, but in the auto world it seems to happen more frequently. How many times have you seen a new car model for the first time and asked yourself, "Who the heck would drive that?"
Sure, there's a market for every vehicle, albeit a limited one.
When we were in Hawaii a few months back, we rented a Chevy HHR. I've rented or driven some terrible cars in my day – the Renault Twingo, Chevy Aveo, and Kia Rio are the first to pop to mind – but this was by far the worst. It had no side or rear visibility, ugly styling, and above 7,000 feet up Haleakala it had less power than a 2-year-old on a bicycle. If you love your HHR, I apologize, but there's a reason parking lots aren't overflowing with that car: to most people, it's junk.
How did GM come up with the HHR? It's a flashback to the original 1940s Suburban, of course, and it fits into the "crossover SUV" category, but it also illustrates one of the biggest problems with GM, Chrysler and even Ford: Too many brands, too many models.
Let's look at some automakers who aren't facing huge financial problems at the moment: the Volkswagen group, Toyota and Honda.
The Volkswagen group includes the Volkswagen, Audi, Lamborghini, Bentley and Bugatti brands in the United States, but for the most part you'll only see VWs and Audis on the road (unless you spend time in L.A.). The VW and Audi brands are recognizable for being heavy, well-engineered German beasts. Their other brands are recognizable for being ultra-luxury brands that very few people can afford – and, because of this, they're highly profitable for the company.
Compare Volkswagen to GM. Volkswagen sells two main brands in the United States. GM sells seven brands in the U.S., and a total of 12 brands worldwide. If you want to buy a new VW, you have 12 choices of models. If you want to buy a new Chevy, you have 21.
Choice is both good and bad. Consumers like choices, but not when they're all very similar. Having that many models and that many brands means resources are being spent on vehicles that consumers might like just a tiny bit more than another model you're already making. Take, for example, the Chevy Aveo and Cobalt. The Aveo is a small four-door sedan that retails for around $15,000 and gets 34 miles per gallon on the highway. The Cobalt LS base model is also a four-door sedan that retails for around $15,000 and gets 35 miles per gallon on the highway.
If GM got rid of the Chevy Aveo, would they lose its buyers to another carmaker, or would those buyers instead get a Cobalt Sedan, which is essentially the same vehicle? They could also instead choose to buy the Chevy Aveo in one of its four other brands and 11 different names around the world (it's the same car as the Pontiac G3 Wave, also owned by GM).
That happens frequently in both GM and Chrysler. The GM "W" platform, for example, is or was the basis for the Pontiac Grand Prix, Buick LaCrosse, Chevy Impala and the Chevy Monte Carlo. Sure, there's a lot of savings by sharing parts, but all of those vehicles retail for roughly the same amount (within $10,000), had basically the same features, and all looked very similar.
Now look at VW. If you want to buy a vehicle on the VW 7L platform, for example, you have a choice of the VW Touareg at $40,000 new, the Audi Q7 at $50,000 new, or the Porsche Cayenne (which VW has a partnership with on that model) at $72,000 new. They all look a little similar, but their price varies greatly (even though, admittedly, all of those vehicles are out of the reasonable price range of 80 percent of car-buyers), and if you're looking for a Porsche SUV, you're not going to walk away buying a VW SUV; whereas if you're looking for a Buick car you could reasonably walk out of the dealership with a Chevy Impala and be just as happy.
If you look at the structure of the more successful automakers in the world, they sell limited brands and badges in the United States. Toyota has Toyota, Scion and Lexus; Honda has Honda and Acura; Nissan has Nissan and Infiniti. All achieve the economy of scale that comes from being able to share parts between models, but don't suffer the cannibalism that occurs when you're selling multiple products that are all essentially the same. That's why even though Lexus and Toyota sedans are very similar and share much of their parts, the Lexus is priced higher and has more comfortable seats and better fit and finish.
It wasn't consumers who came up with the wacky concept of too much choice. I don't remember any protests on the streets of people begging GM to make a Buick SUV, or to produce yet another underpowered sedan in the $15,000 range.
With GM's bankruptcy, I hope that the company will wake up and realize that while choice is important, it's not as important as the quality of the vehicle and the financial stability of the company.